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NEW DELHI: The Sensex is trading at a PE multiple of about 14 times, and most analysts feel, given the current economic environment, its valuations looks expensive.

"Yes, valuations look expensive and the markets are not cheap and are trading close to long-term averages," said Jyotivardhan Jaipuria, HoR, BofA-ML in an interview with ET Now.

"But there is a belief that we are close to bottom on the earnings and the economic cycle. The last time we saw something like this was in 1997 to 2002, after which we had a strong spell of sharp earnings growth, with the next five-year average of 25 per cent," he added.

If we go back into history, in a scenario when there are poor earning numbers and slowdown in economic growth, markets have tended to move in 10-11 P/E, which is not the case this time.

Going forward, most of the return in the market will be led by earnings growth. However, the good thing is that valuations are still holding up. According to analysts, what is preventing the markets from heading lower is the hope that we are close to a bottom on the earnings and the GDP side.

Moreover, a lot of people are building hopes of an interest rate cut going forward to kick-start growth in Asia's third-largest economy.

Jaipuria is of the view that the markets are likely to remain range-bound, between 18,500 and 20,500, with weak economic and earnings growth capping the upside and hopes of rate cuts and policy measures protecting the downside.

On P/B, the market is at 2.3x, a 16 per cent discount to historical average of 2.8x. However, lower P/B is justified by lower-than-average RoE.

Moreover, the global investment bank still expects minor downgrades to Street earnings estimates for FY14. This means that the Sensex PB may be higher than expected.

Where can one invest?

Analysts still find value in private banking space even as they say defensives like pharma and IT are likely to do well.

BofA-ML

The global investment bank continues to favor global plays such as technology and pharma over domestic plays given that rate cut expectations in the market will be further toned down.

Telecom remains another 'overweight' for us and we play a better monsoon demand through autos. Top-five stocks in BofA-ML include TCS, Lupin, Idea Cellular, Hero MotoCorp and ICICI Bank Ltd.

Nipun Mehta, Founder & CEO, Blue Ocean Capital Advisors

As far as overall private banking space is concerned, they have tried to or they have actually shown healthier results in comparison to PSU banks. However, given the fact that their overall growth, NIMs and interest margins have been significantly better, they will continue to attract investor attention.

Clearly, there is no expectation in terms of any significant increase as far as provisioning in the private sector banking space is concerned, at least for the September quarter.

The private sector banking space might not get so badly impacted.

Mrinal Singh, Fund Manager, ICICI Prudential AMC

Of late, we have been having more inclination towards export-oriented businesses. In that context, if you see a technology, pharma, and textile and export textile per se, they are currently doing well for us.

We also believe that auto ancillary should do well, they are well entrenched in terms of businesses and have a strong brand. We are contemplating, reducing our underweights on domestic cyclicals, and may be global cyclicals also.

R Venkatraman, MD, IIFL

If you look at the way the market is currently structured we are seeing two clear baskets. There is a huge premium for quality and there are stocks which are trading at multi-year highs and showing absolutely no signs of correction whatsoever.

We are recommending FMCG pack to our clients to hold because there is a premium for quality and there is some kind of lesser impact of the slowdown on these stocks. Second thing is the two sectors which should clearly benefit from the rupee depreciation are IT and pharma. We are recommending investors to hold on or look for a buying opportunity in these two sectors.

We have a 'neutral' view on the entire banking space as we think that this entire story of the deteriorating asset quality is yet to play out. Second thing is that they are going to get hit by this entire impact of the higher interest rate.

(The views and recommendations expressed in this section are analysts' own and do not represent those of EconomicTimes.com. Please consult your financial advisor before taking any position in the stocks mentioned.)